Mortgage News

Riding a wave of new refinance loans, the VA home loan program experienced a huge year in Fiscal 2011, guaranteeing nearly 360,000 loans, according to data provided by the Department of Veterans Affairs.

VA refinance loans surged 40 percent from FY10, as military borrowers sought to capitalize on historically low interest rates. Refinance volume increased at least 40 percent in more than two dozen states, from Alaska to West Virginia.

Total loans guaranteed increased at least 20 percent in 11 states (Alaska, California, Colorado, Hawaii, Iowa, Massachusetts, Michigan, Oregon, Tennessee, Vermont and West Virginia) and the District of Columbia.

Four states saw VA refinance volume increase at least 70 percent, including a staggering 108-percent jump in Michigan.

With FY11 in the books, the VA has now helped more than 18.7 million borrowers secure a home purchase or refinance since 1944. The total loan amount now exceeds $1 trillion.

Looking Ahead

A tighter lending climate has spurred renewed interest in this long-cherished program. VA loans feature less stringent requirements and require no down payment for the vast majority of borrowers. In fact, 9 in 10 VA borrowers secured financing in FY10 without putting down a dime.

That flexibility, coupled with record-low interest rates, continues to spur military borrowers to explore the home loan benefits earned by their service.

With rates likely to remain low and thousands of service members set to return from Iraq and Afghanistan in the coming months, the VA loan program appears poised for continued growth.

A House bill passed this week would increase access to the VA home loan program for surviving spouses of permanently disabled veterans.

Dubbed the Disabled Veterans’ Surviving Spouses Home Loans Act, the proposed legislation would eliminate the requirement that only spouses of veterans whose death is attributed to a service-connected disability may qualify for a VA loan.

Instead, the bill would provide loan eligibility to spouses of permanently disabled veterans whose deaths are not necessarily attributed to their service-related disability. It passed by a 418-6 vote as part of the Veterans Opportunity to Work Act.

“As we approach Veterans Day, we should ask ourselves if this Congress doing all that can be done for our veterans,” U.S. Rep. Virginia Foxx, R-N.C., the bill’s sponsor, said before the House vote. “This bill maintains our promise not only to the men and women that have served in the Armed Forces, but to their families as well.”

The change would provide loan eligibility to thousands of military spouses.

A series of veterans organizations came out in favor of the bill, including Veterans of Foreign Wars, the American Legion and Disabled American Veterans.

More than 18 million Americans have used the VA loan program to become homeowners since 1944. The program has become increasingly important in recent years as lending requirements have tightened.

VA loan volume has increased 135 percent since 2007. Last year, the agency guaranteed 314,011 loans last year, including about 1,000 to surviving spouses.

In life and in business we often come up against challenges and obstacles. No matter what we do, no matter how well prepared we are, the monster will rear its ugly head at the worst possible moment!

For those of us in the mortgage business, that ugliness appeared around the end of 2006. Since then, it has been a struggle to stay in business. And for those of us that have survived thus far, five years later, it remains a struggle.

How can you survive when faced with challenging obstacles? How can you overcome the demons that want to possess your life and your heart and stop you dead in your tracks?

Often times we think that success is because of luck. We think that if we are lucky enough, we will succeed through a challenge. But luck has nothing to do with it. It is even simpler than luck. How you handle your life, your business, and your family is based on one simple thing…

Your Attitude!

Your attitude is your first line of defense for any situation. And it is as simple as saying “self, what are you putting in your head?”

What you say and what you do (thoughts and actions) will have a greater affect on your outcome than how you do it. Your brain is a very powerful weapon in your arsenal of defense. It will process multiple situations at a time. Often, you do not even realize all of the thoughts that you are putting into your brain to process.

If you have lots of negativity and doubt, your brain will process that. And watch out! Because you will speak, sound, and reflect of negativity.

If you are positive, upbeat, focused, and driven, your brain will respond positively to those and your reflections will be positive.

So look in the mirror. How is your attitude? Will you be defeated today or will you win?

A colleague of ours, a friend and teacher of many in our industry, is facing the hardest challenge of his life. The meltdown in the industry was not able to take him down. Personal family relationships could not defeat him. And now he has to face another battle. A battle most of us have never had to face. Our friend, our colleague, Dustin Hughes, has been diagnosed with cancer. Specifically, brain cancer – stage 4 Glioblastoma Multiforme. This is an aggressive form of cancer with a low prognosis for survival.

You think that your attitude is bad? You think that you deserve a pity party? Dustin is 35 and has three young children.

Dustin is entitled to have an attitude! And let me tell you, he does! His attitude is on fire! His attitude is that he is going to kick his cancer in the ass and he is going to survive! Dustin is already a winner!

If you do not know Dustin or if you have not read his story, send a friend request to him – you need to read it! His attitude shines right through. This is someone that is entitled to be down. Yet, he has chosen to accept the challenge and defeat it!

The VA is urging its approved lenders to provide relief to military borrowers affected by the tornadoes that devastated Alabama, Arkansas and other parts of the country in April.

The agency issued a circular in early May to help those whose homes were damaged or destroyed and families of those injured or killed in the storms. Thousands of homes and businesses were ravaged by dozens of tornadoes that roared through the South.

Among the salient points:

The VA encouraged mortgage servicers to waive any late charges or fees for borrowers in affected areas. It also suggested that servicers stop credit reporting on veterans whose homes, families or livelihoods have been impacted. The agency isn’t penalizing servicers for late default reporting.

There’s a hope that lenders will abide by the VA’s suggested 90-day moratorium on starting new foreclosure proceedings against borrowers in affected areas.

Lenders and servicers are expected to work closely with borrowers to determine their needs and what type of forbearance would likely prove most helpful and effective.

National Guard members are being activated in some communities to help with recovery efforts. The VA is asking lenders to be mindful of those Guardsmen in the coming weeks and months, as they can experience financial stress during times of extended activation.

The agency put forward a similar message last September in the wake of the Gulf oil spill. Borrowers in need should contact their mortgage servicer as soon as possible. They can also contact their nearest VA Regional Loan Center by calling 1-877-827-3702.

Borrowers don’t need to have a VA loan to utilize the agency’s counseling services.

The home-buying tax credits that helped the sagging real estate industry stay afloat last year are still available to one final group of prospective buyers: Active duty military members.

But time is running out, which means real estate professionals should jump at the opportunity, especially in military-rich parts of the country.

Service members who served at least 90 days on extended duty from January 2009 through April 2010 may be eligible for the $8,000 credit for first-time buyers or the $6,500 credit for existing homeowners. Service members have until April 30 to sign a purchase agreement and until June 30 to close on the home.

They also face the same general requirements that civilians did, including:

The purchase price cannot exceed $800,000

Buyers must be at least 18 years old

Individuals can’t have an income greater than $125,000; married couples filing taxes jointly can’t have a combined income greater than $225,000

First-time buyers cannot have owned a home in the last three years

The requirements for the $6,500 credit are the same, except that buyers must have lived in their current home for five of the last eight years.

Thousands of veterans and active duty service members serving in Iraq, Afghanistan and other destinations abroad may be eligible for these tax credits. They can be claimed no matter the loan product.

For many prospective buyers, the VA Loan Guaranty program may represent the most cost-effective path to homeownership. These government-backed loans come with no down payment and feature flexible credit and underwriting standards. VA loan rates are typically lower than conventional rates, and VA loans have no private mortgage insurance or prepayment penalties.

One of the nation’s biggest mortgage lenders overcharged thousands of military members in apparent violation of a law designed to protect service members against foreclosure.

JP Morgan Chase is currently cutting refund checks totaling some $2 million to about 4,000 service members nationwide. The lending giant failed to follow provisions of the Servicemembers Civil Relief Act, which caps interest rates for military members and helps safeguard against default.

Chase also improperly foreclosed upon more than a dozen service members. The SCRA spells out an explicit grace period that insulates service members from foreclosure actions.

Company officials have apologized for the violations and resolved all but one of the foreclosure errors, according to the Army Times.

“We are deeply appreciative of those who fight to protect our country and Chase funds a number of programs that provide benefits to military personnel and veterans, and while any customer mistake is regrettable, we feel particularly badly about the mistakes we made here,” Kristin Lemkau, chief communications officer at JP Morgan Chase, said in a statement to NBC News, which first broke the story.

This isn’t the first high-profile violation of the Servicemembers Civil Relief Act. But it comes at a time of heightened interest in protecting military members from predatory lending and other financial problems.

A pair of Democratic U.S senators — Jack Reed of Rhode Island and John Kerry of Massachusetts — are calling for a federal investigation.

“Soldiers fighting on the frontlines to protect our country shouldn’t have to needlessly fight with banks to protect their homes,” Reed told reporters. “JPMorgan Chase was violating the law, and I am concerned other banks may also be wrongly overcharging our troops or taking unfair advantage of their situation.”

The Chase revelations come after the new Consumer Financial Protection Bureau recently unveiled an arm dedicated to protecting the interests of U.S. service members. The Office of Servicemember Affairs is charged with educating military members about consumer protection and monitoring complaints and bad practices against those who serve.

There are bubbling concerns that USDA loans, of all places, could be the next mortgage product to collapse.

An audit released recently revealed that thousands of these low-cost rural home loans might be headed for default, compromised by poor oversight and the same type of lending practices that triggered the subprime mortgage meltdown.

The audit looked at a relatively small sample of the more than 133,000 loans the USDA guaranteed in 2009. But the findings were disconcerting enough to raise major red flags. Auditors estimate that more than 10 percent of loans might have been provided to consumers who failed to meet minimum financial requirements.

Compounding the problem, government officials didn’t catch the discrepancies. Borrowers who might not have the financial wherewithal to repay their mortgages could soon find themselves in default.

As The New York Times pointed out in a recent article, the audit report didn’t address whether any approved USDA lenders flouted lending requirements and regulations on purpose.

For their part, USDA officials admitted the program needed improvements but took exception with the claim that borrowers who didn’t meet requirements ultimately secured loans.

The agency specializes in providing loan guarantees to low- to middle-income borrowers in rural areas. The value of USDA-backed loans has soared in recent years, from $3.7 billion in 2007 to about $16.8 billion last year.

“I don’t believe there is any intent by anyone to defraud the government and give a loan to someone who is ineligible,” Tammye H. Treviño, administrator of the Rural Housing Service, told the Times. “A lender by nature is going to be conservative when he’s doing income calculations.”

Most of us in the mortgage and real estate business are pretty familiar with FICO and its scoring models.FICO scoring algorithm is used by Experian, Equifax and TransUnion and has been for years. Mortgage FICO scores range from 300-850.

The issue today is NMLS is requiring you to pull your score from Trans Union and it will be a Vantage Score. (A What?)

So what’s the big deal you might ask? Well for one the scoring model range is from 501-950. So when you get your score how will you know if a 640 is ok, or a 720? Or will an 820 be the norm?

What You Need To Know About the Vantage Credit Scores

Here is some background information to help us all out. Vantage Score is the creation of a new scoring model developed by Experian, Equifax and TransUnion in 2006. Why would they do this? Simple, they are tired of paying FICO licensing fees to use their algorithm.

In fact FICO sued Vantage Score Solutions and the three credit bureaus (and you thought they were all friends) and FICO lost. (Now they both have to play in the same sandbox)

FICO still holds about 74% of the credit scoring market, while Vantage Score has captured about 6% since 2006 when it was introduced. After FICO lost they announced they were raising their prices to pull FICO scores through myfico.com (hey you have to make up for that lost profit right?) So overall Vantage Score has a small piece of the pie.

Here is the Vantage Score claim to fame. Their model uses a single algorithm at each bureau, which can translate to better score consistency when consumers pull their Vantage Score credit ratings. They claim the Vantage Score model showed an 8 percent increase in credit scores for 10 million consumers after doing a random score check.

Currently, only TransUnion and Experian sell the Vantage Score to consumers for $7.95. Equifax and TransUnion sell FICO scores.

Vantage Score is a new credit score that was developed jointly in March 2006 by the three national credit reporting agencies- Experian, Equifax, and TransUnion. This new credit scoring system has been developed to simplify and standardize scores across the three bureaus. Today, customers find that scores from each of the credit bureaus can vary widely. However, this new credit scoring system tries to reduce these variations, and help the lenders assess their customers in a more consistent way. Consumers can get their Vantage Score through any of the three major bureaus; all of these bureaus use the same scoring algorithm for calculating the Vantage Score.

What is the significance of Vantage Score?

The vantage score ranges from 501 to 990 and at the same time assigns a letter grade ranging from A to F to specify each range. Given below is a set of different score range of Vantage Score and their corresponding grades.

Score Range

Grade

Comments

901-990

A (Super Prime)

Applicants who fall in this range are considered by most creditors, issuers and lenders as the most creditworthy borrowers. Thus a borrower in this category will get best rates and terms on a loan from creditors.

801-900

B (Prime Plus)

Borrowers in this category get “good” rates and better terms from creditors. Most of the lenders view the consumers falling into this category as creditworthy.

701-800

C (Prime)

Usually lenders offer reasonable rates to the applicants within this score range. However, some lenders may wish to analyze in depth the credit history of consumers in this category in detail and may need additional documentation in order to extend favorable terms.

601-700

D (Non Prime)

Consumers in this category will have lot of trouble in getting loans by the creditors. However, a borrower belonging to the non prime range can get credit on less favorable terms from lenders.

501-600

E (High Risk)

Many lenders generally prefer to turn down the application form submitted by the applicants belonging to the high risk range. Others may offer credit but will require deposit accounts to protect the loan.

What affects your Vantage Score?

Vantage Score is calculated on the basis of six factors. Each factor plays a vital role in evaluating your Vantage Score; however these factors do not have equal weightage. Given below are the six factors with their approximate percentages:

Utilization of available credit (23%) – The amount you are using from your available credit.

Credit balances (15%) – The total amount of debt that owe to the lenders and creditors.

Length of credit history and types of credit (15%) – It includes the duration of your credit history and the types of credit you have.

Recently opened credit accounts (10%) – The number of credit inquiries you have made and the currently opened credit accounts.

Available credit (7%) – The total amount of credit available with you

So Why Would NMLS Use Vantage Score Instead of FICO – a Score We Are All Used To?

Well take heart the scores may not be as big an issue as we all think. What have we heard from those who have already had their credit pulled? They are looking at the background check (make sure it’s clean) and then for negative items like open collections, judgments, tax liens, bankruptcies on your report.

And here is the bottom line, the states are requesting that you write letters of explanation for any or all of the negative items paid or unpaid. So be ready to document what happened, why and when. Each state then has the option to terminate, suspend or put you on probation. We are hearing all kinds of stories from you and on the blogs, so please pass the information about what you are experiencing, back to us. Check with your State’s Licensing Board to see what “vantage credit score” they will be using to “grade” you!

NMLS and mandatory credit pulls, it has a purpose and we all understand that. But maybe with current market conditions you could show some grace on how you handle what you are about to see. If the credit pull has the power to give you a “thumbs up or down” in the profession you love, they should have pulled it before you spent the money on the training and new tests. I will go out on a limb and guess the loan professionals that have survived this economic housing meltdown, stayed in the business, taken the tests and passed are not fraudulent criminals that were in the business in its heyday.